FINANCE - MARKETS

Monetary policy

European Central Bank pledges to keep interest rates low and keep buying bonds



Christine Lagarde, president of the European Central Bank, is seen speaking at a press conference, 22 July 2021. The bank is targeting a 2% inflation rate and said it would even temporarily tolerate a slightly a higher rate. European Central Bank

Christine Lagarde, president of the European Central Bank, is seen speaking at a press conference, 22 July 2021. The bank is targeting a 2% inflation rate and said it would even temporarily tolerate a slightly a higher rate. European Central Bank

The European Central Bank said it would maintain its low and negative interest rate policy and its massive bond buying programme in attempt to bring the inflation rate up to 2%.

The European Central Bank’s governing council left its benchmark interest rates at -0.5%, 0% and 0.25% on Thursday, and promised to continue purchasing €1.85trn in bonds until March 2022 to aid the euro zone’s post-pandemic economic recovery, reported CNBC.

The ECB stated: “In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.”

Martin Wolburg, senior economist at Generali Investments, told the Financial Times that “the ECB’s shift meant there was ‘now leeway for it to push the first rate rise beyond 2024’, which would be a decade after it first cut rates below zero.”

Christine Lagarde, the ECB’s president, also promised clearer communications, with “shorter, crisper” statements and less jargon, Reuters reported.